Alex's Study Guide

RIBO 1 Study Guide

How to Use This Study Guide

• Key terms and ideas are grouped for easier reading and highlighting.

  • Example: Business Interruption Insurance: restores lost income if caused by insured perils up to the level the business would have earned if the loss hadn’t occurred (insured perils = same as property insurance).

• Content highlighted in GREY should be reviewed but is not overly important for the exam.

• For lists (e.g., exclusions), remember 3-5 of them.

• Lists sorted to feature the most important or easiest to remember items at the top.

• An '=' sign typically indicates a definition.

• Focus on understanding the ideas behind concepts rather than rote memorization.

  • Viewing from the insurer’s perspective can provide reasoning that aids memory.

Definitions

1. “Insured” = actual insured(s) & employees of the insured.

2. AoI = Amount of Insurance

3. On Premises = on the premises stated on the declaration page of the policy.

4. “Controlled” = owned, rented, or controlled by the insured.

5. CoC = course of construction.

6. “Owned” = owned, rented, leased (or otherwise controlled).

7. “Vehicles” includes watercraft and other motorized vehicles (not just cars).

Chapter 1 – Introduction to Insurance

Definition of Insurance

1. An agreement between the insurer and the insured to transfer risk.

2. The insurer promises to pay when a specific peril damages an object of insurance or when the insured causes loss to others.

3. Insurance only pays for accidental losses happening after the agreement starts.

4. Principle of Indemnity: payment amount = Amount of Loss based on the value of the object immediately prior to loss.

5. Payment can be in cash or through repairing or replacing the property.

Functions of Insurance

• Spread Risk: from few to many; most important function where premiums are used to pay losses.

• Loss Prevention/Reduction: insurers partake in measures that reduce the incidence of losses.

  • This may involve onsite visits to propose actions that can lessen potential losses.

• Peace of Mind: allows individuals to take risks (e.g., starting a business) with a mechanism to shield against potentially large losses by paying smaller fixed amounts.

• Supply Credit: lenders require evidence of insurance for unprotected property before lending.

• Source of Jobs & Capital: insurers invest their premium dollars.

General (Property & Casualty) Insurance Categories

1. Automobile Insurance: largest volume and required by law.

2. Property Insurance: covers personal and business property, second largest in volume.

3. Liability Insurance: covers protection if legally responsible for causing injury or damage to a third party (also known as casualty).

Types of Insurers

• Private Insurance: includes stock companies (profit-oriented) and mutual companies (owned by policyholders and non-profit).

• Government Insurance: examples include Employment Insurance, provincial health plans, and Workers Compensation (usually compulsory).

Private Insurance Companies

Stock Companies

• Owned by shareholders, profit-oriented:

  • Money is derived from private funds or public stock issuance.

  • Profits are reinvested or distributed as dividends to shareholders.

  • Writes most policies and is generally licensed to operate in numerous provinces.

Mutual Companies

1. Owned by policyholders; not profit-oriented.

2. Collect premiums necessary to cover operational costs.

3. Generally cheaper insurance but can be lax on claims adjusting.

4. If losses occur, the policyholders must cover the difference; if there is a surplus, it’s distributed among policyholders or reinvested.

5. Types of Mutual Companies:

   • Assessment: policyholders elect a board, premiums constitute a communal fund for claims.

   • Cooperative: shareholders are insureds and share capital contributions.

   • Factory: focus primarily on fire insurance to prevent claims through rigorous inspection and compliance with fire safety measures.

Captive Insurer

• Definition: an insurer entirely controlled by its insureds, often set up to manage risks of a related group of large companies.

  • Operates like a standard insurer but assumes its own risks.

Distribution of Insurance

1. Direct Writer: sells own insurer products directly to consumers using in-house employees.

   • Offers only products that the specific insurer has.

2. Independent Broker: presents products from multiple insurers with commission-earnings based on sales.

3. Agency System: small business model where agents earn commissions and manage their own client databases, usually representing one insurer.

   • Examples: State Farm & Co-operators.

4. Managing General Agents (MGA): intermediates between insurers and brokers, may have underwriting powers and settle claims.

   • Often possess specialized expertise and manage products that require specialized underwriting.

   • Can be structured as independent brokerages or agencies.

Lloyd's of London

• A historical marketplace where underwriters insure unconventional risks that standard markets would not.

  • Composition: a collective of syndicates, groupings of underwriters managing shared risk.

  • Built by coverholders to operate more efficiently globally, authorized to underwrite contracts.

• Subscription Policy: 1+ syndicates collectively underwriting a contract, with percentage subscriptions defined.

  • Example: Client with a risk valued at $4 million receiving progressive coverage (e.g., 50% from one syndicate, 25% from another).

Reinsurance

Reasons for Reinsurance

1. Increase Capacity: allows insurers to share risk exposure.

2. Catastrophe Protection: pivotal during natural disasters that could otherwise bankrupt insurers.

3. Leaving a Class of Business: if an insurer opts to retract from a specific underwriting class, they can offset losses by reinsuring.

Types of Reinsurance Contracts

1. Treaty Reinsurance: automatic contracts covering all policies within a defined class.

2. Facultative Reinsurance: negotiated separately for each policy depending on individual risk.

3. Proportional Reinsurance: shares losses or premiums by a defined percentage split corresponding with each insurer's risk assumption.

4. Non-proportional Reinsurance: coverage activates after losses surpass a predetermined amount.

Purchasing Insurance

New Business Process

• Step 1: CSR (Customer Service Representative) conducts professional greetings and application processing with needs assessments.

• Step 2: Collecting completed applications, requiring signatures, with an emphasis on material facts disclosure.

• Step 3: Application review and authorization follow by payment collection.

Required Information for Applications

• Details include named insured, insurance policy history, loss hlidadey, property descriptions, coverage limits, and usage.

• Vehicle details and history, loss descriptions, and driving status also contribute to assessing risks.

Renewal Process

• Initiated before expiry to ensure continued protection, requiring verification of changes prior to policy issuance.

• The Pareto Principle (80/20 Rule) suggests renewing 80% of income stems from 20% of clients, encouraging solid long-term relationships.

General Document Processing Procedures

• Includes correct handling of documents and thorough verification for compliance and quality assurance.

• Clients must be communicated with about their filing status, and records of communication should be maintained for audit purposes.

Policy Change Provisions

• Riders and endorsements can be applied for amendments without altering the entire contract, conducted primarily for client flexibility.

Ethical Guidelines and Professional Standards

General Conduct Requirements

1. Complaints Handling: Following the FSRA requirements.

2. Transparency: Integral in admissions of misunderstandings and recalibrating incorrect processes promptly.

3. Confidentiality: Ensures client information remains protected from unauthorized disclosures in compliance with relevant laws.

Conduct in Selling Insurance

1. Ethics Training: Provisions for employees to uphold professional standards and respond to potential conflicts adequately.

Final Notes

• Broader industry regulations include guidelines for effective communication, the roles of professional associations, and operational standards that shape the insurance landscape.

• Continuous education (CE) is mandated for licensing renewal. Keep abreast of new developments via approved institutions and industry publications.